All the Ways You’re Getting Ripped Off by Junk Fees (And How to Fight Back)

Americans spend hundreds of dollars on junk fees every year, totaling $65 billion annually. That got the attention of the Biden administration and the Consumer Financial Protection Bureau (CFPB). Banks, airlines, credit cards, retirement plans — those and other industries add to their shareholders’ profits through these hidden costs.

American corporations saw their profits more than quadruple, from $786 Billion in 2000 to $3.5 Trillion in 2022. As you can imagine, they are fighting the new regulations in the courts and in Congress.

In the meantime, though, you can fight back against junk charges.

What are Junk Fees?

The CFPB is defining junk fees as charges that are much more than the actual cost of doing business, hidden from the price the consumer sees.

The term junk fees covers a few charges:

• Convenience fees, where you get charged extra for doing something a certain way (using a credit card instead of check, for example).
• Late fees or penalties
• Mandatory fees, such as service fees on tickets.
• Overdraft fees
• Fees automatically charged at a resort or hotel for perks you don’t use.

These fees not only drive up prices for consumers, they also make it harder to comparison shop, turning what might seem like a great deal into a disaster once all of the hidden fees are piled on.

The American Economic Liberty Project writes:

“This is not just a consumer issue. For businesses, junk fees distort competition and unfairly privilege companies that focus on deceptive pricing strategies rather than on making better products.”

When we’re talking about junk fees, there are a few other terms to know. Drip pricing is when a business reveals charges and fees piece by piece, instead of giving the consumer the total price in one place. Often people don’t know what they will actually pay until they get to the checkout screen.

Search costs are not financial, they are the consumer’s time and attention. For example, if you found a great airfare to fly home for the holidays, but then ultimately realize that the seat, baggage and other fees cost more than other fares, the time and effort you put into the now pricy fare is the search cost. Studies have shown that people will stick with the higher fare because they’ve invested their time and search energy. Businesses know and take advantage of that.

Another aspect the CFPB is focusing on is making it easier to cancel services. The Federal Trade Commission (FTC) and CFPB are proposing Click to Cancel. They posit that it should be as easy to cancel a subscription as it is to sign up. If anyone has ever tried to get out of a gym membership, they will be grateful for this.

However, there is some good news. Many banks have already rolled back some of their fees, reducing overdraft fees. Airlines are starting to drop the charge for allowing a family with small children to sit together. There is a bipartisan bill in Congress right now which would ban hidden fees at resorts, hotels, and other short term stays, and a slew of other bills protecting consumers have been introduced.

We are going to look at some of the areas where junk fees make companies billions of dollars in profits without necessarily providing any value to the consumer. The FTC and CFPB have proposed many new rules banning these fees, and are being fought in the courts by several industries.

Where to Watch For Junk Fees 

Junk fees abound. Keep an eye out for junk fees in these industries.

Airlines

Airlines have perfected the art of drip pricing — showing an alluring initial price, which keeps rising as you move through to purchase. Seats, luggage, and even making sure children can sit with their parents all can trigger extra fees, leading the final price to be more than expected. The US Department of Transportation is pushing airlines to reveal the total cost of a flight before payment, something the airline industry is resisting.

Looking for more transparency? The DOT created an airlines dashboard. It shows consumers which airlines have improved their practices on family seating, flight delays, and cancellations. Several airlines have agreed to stop adding a surcharge for families flying together.

Auto Loans

There are several areas where consumers can be overcharged in their auto loans. Late fees often ignore the cap in contracts. For example, if your monthly car payment is $400, the late fee usually isn’t supposed to exceed 5%, or $20.

Repossession

Even though a car may have been repossessed, the consumer may still be charged fees, or the consumer may have to pay to retrieve their personal items from the repossessed car. The CFPB also found that many repossession fees are excessive compared to the cost of repossession.

Banks

Over the last few years, many banks have reduced or dropped their insufficient funds (NFS) charges. Credit Unions and banks collected $9.9 Billion just in overdraft fees in 2022.

Late that year, the CFPB issued guidance restraining these financial institutions from overcharging surprise overdraft and depositor fees. That means if someone has enough money in their account when they make the purchase, or if they deposit a check that bounces, those bank charges are violating the Consumer Financial Protection Act. Banks also are no longer supposed to charge a raft of fees if you want to close or move your account.

Cable Companies

Cable companies love the $28 Billion they get each year in excess fees. The Federal Communications Commission (FCC) just proposed a rule that will ban quit fees, or early termination fees. Cable companies, like airlines, hotels and resorts, would have to display the real cost consumers pay, instead of surprising people at checkout.

Credit Cards

Credit card companies and the banks that love them collect $12 billion in late fees each year, which the CFPB says uses a loophole in a 2009 law that prohibited exorbitant fees. If they are successful in closing the loophole, the amount consumers would be charged would drop to $8.

Prepaid credit cards can also come with a host of fees that provide little or no service to the consumer. You may have to pay to purchase one, then pay to use it, and then get charged a monthly fee to keep it open, an ATM fee, balance inquiry fee and a deposit fee. It is worth your time to research prepaid credit cards.

Health Insurance

Under the Biden administration’s plan to roll back junk fees, insurance companies will be barred from offering types of insurance that misleadingly claim to cover medical costs and facilities, or discriminate because of pre-existing conditions. The proposed rules target surprise medical bills, short term plans that provide no meaningful coverage, and medical debt created by medical credit cards and loans. They state there must be “clear disclosure” of what plans cover.

Mortgages

Excessive or junk fees are possible every step of the way with a mortgage. There might be unnecessary inspection fees, applicant, document, wire, storage and other automated fees, excessive title fees and more at the closing. Ask lenders to explain the fees, especially if they seem to fluctuate while you are preparing to buy.

Once you have a mortgage, be aware of your rights. Certain fees can be waived when a financial loss mitigation option is triggered. Make sure you are not being charged for private mortgage insurance if you didn’t approve it.

Payday Loans

The payday lending industry is backing a lawsuit in front of the Supreme Court seeking to dismantle the CFPB, protecting the industry from federal regulations while the lawsuit has made its way through the court system.

Payday loans can charge up to and more than 300% APR (annual percentage rate) plus fees, resulting in loans that are difficult and expensive to pay back. Sometimes the loans are set up to automatically renew, whether the consumer can afford them or not. Unauthorized withdrawals can cause overdrafts, among many other issues with the payday loan industry.

Renting

Renters are often surprised to find that in addition to their monthly rent, they may have to pay for a host of non-refundable fees — utility, insurance, application, notices (yes, they have to pay for being told their rent is late, and then pay a late fee), processing, billing and convenience fees.

Regulations have been released that require landlords to be more transparent about the fees renters will be charged. There is also proposed legislation in Congress that if passed, will limit fees and weird charges.

Retirement Plans

You would think that financial advisors have to work in the best interest of clients when setting up retirement plans and investments, but that is not necessarily true. New FTC regulations will require financial advisors to do that, supplementing some retirees’ income up to 20% over their lifetime. These regulations are already in place for other types of investments.

The regulations stipulate that when working with certain 401(k) plans, IRA rollovers, and a class of investments called non-securities, which can be real estate, annuities, pensions, etc., the financial advisor must choose options which best serve the client, not one that might offer a better commission for the advisor.

Student loans

Carefully reading your loan documentation is vital with student loans, because even though some lenders disallowed credit card payments, when someone did pay by credit card, they would accept the transaction, then cancel it. This caused the loanee to have to still make the payment, but then also pay late fees and additional interest.

Tickets

Concert and festival ticket pricing have long been bemoaned by fans. A bipartisan bill in Congress called the Fans First Act has been introduced that requires ticket sellers to reveal the full price with all of the fees, ban the use of bots purchasing blocks of tickets,

reveal where the seats are located and whether it is being resold by a broker or original ticketer. It also has penalties that can actually sting a business using shady practices.

Travel

Planning a vacation is fun, but the good feeling falls apart after falling prey to all of the junk fees associated with travel. Hotels and resorts made almost $3 billion on these fees alone in 2018. Be forewarned, the industry is not happy with the idea they will have to disclose these fees when people are making reservations.

Hotels, rental cars, and resorts, in addition to airlines, have been using junk fees to add to their profits in escalating ways. Resorts add mandatory nightly fees, whether or not people use the gym or if the wifi actually works. Hotels add a 5% per night fee, separate from the price already confirmed. Rental car companies will charge more than six times what a toll costs when a transponder is used.

There is proposed bipartisan legislation in Congress that would require hotels, resorts, and other accommodations to reveal all of their charges up front. A handy tool is this hotel and resort fee checker.

Vehicle Purchases

Buying a new car is exciting, and you might have shopped around and found the best deal. Proposed rules would have dealers giving you the total cost up front. There are some fees you can avoid or negotiate like tire and wheel protection, loan insurance, extended warranties and more.

What Can You Do About Junk Fees?

In addition to filing a complaint with the CFPB, there are definite steps you can take to counteract junk fees and other financial surprises. The first step is doing your research. The second step is overcoming human nature, which is a little harder.

Companies know that with drip pricing, by the time you come to the final screen with that higher price, you are likely to give up and accept the charges. Don’t do it! You might think each company charges about the same price, but there really is a good variety.

Review your billing statements, and if you see an unexpected charge, get in touch with customer service. Get everything in writing. And if you end up having an online conversation with customer service, download the transcript of the conversation before you log off.

If you have a banking problem, reach out and talk to your bank. They will often refund a fee if you ask, and haven’t had a lot of previous issues. Here is a good article on how to avoid most bank and credit union fees.

If you’ve been presented with a bigger bill than expected, it is worth your time to negotiate to get them to drop or reduce a fee.

Pay with a credit card rather than a debit card, if possible. Credit cards make it easier to dispute a charge.

Many of the regulations mentioned above are set to start in 2024. Some industries are already becoming more transparent in their pricing. There are state and federal laws which will take effect in 2024 that will force industries into more consumer friendly behaviors. California passed a sweeping anti-junk fee law that will impact industries nationwide.

Paying attention and speaking up for yourself can save you both money and time in the fight against junk fees.

The Penny Hoarder contributor JoEllen Schilke writes on lifestyle and culture topics. She is the former owner of a coffee shop in St.Petersburg, Florida, and has hosted an arts show on WMNF community radio for nearly 30 years.